Josh Barro had a very nice discussion of the issues involved in simplifying the income tax code, as proposed by most of the Republican presidential candidates. He concludes with a discussion of what would probably the greatest simplification for most taxpayers: have the I.R.S. prepare returns that could be corrected by taxpayers if they thought there was an error.
This is now done in some European countries, such as Denmark and Spain. As Barro explains, it could also be done here, for people who file the standard deduction, which is most taxpayers. Barro points out that the number using the standard deduction could be increased by eliminating some deductions. This is true, but it would also be possible to increase the number of people taking the standard deduction by increasing its size.
Unfortunately, because of the power of H&R Block, few politicians are likely to propose this simplification that would be an enormous benefit to tens of millions of taxpayers. As Barro points out, none of the Republican simplifiers have it on their agenda.
Josh Barro had a very nice discussion of the issues involved in simplifying the income tax code, as proposed by most of the Republican presidential candidates. He concludes with a discussion of what would probably the greatest simplification for most taxpayers: have the I.R.S. prepare returns that could be corrected by taxpayers if they thought there was an error.
This is now done in some European countries, such as Denmark and Spain. As Barro explains, it could also be done here, for people who file the standard deduction, which is most taxpayers. Barro points out that the number using the standard deduction could be increased by eliminating some deductions. This is true, but it would also be possible to increase the number of people taking the standard deduction by increasing its size.
Unfortunately, because of the power of H&R Block, few politicians are likely to propose this simplification that would be an enormous benefit to tens of millions of taxpayers. As Barro points out, none of the Republican simplifiers have it on their agenda.
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I mention this because some of the reporting on this topic might have misled some people. For example, the NYT recently told readers:
“All three candidates [Clinton, O’Malley, and Sanders] support a financial transaction tax to limit high-frequency trading.” [emphasis in original]
While Clinton has proposed a tax on high frequency trading, which is almost certainly unworkable, the other two candidates have actually proposed financial transactions taxes. The taxes they have proposed would raise between $600 billion and $2 trillion over the next decade. Virtually all of this money would come out of the pockets of the financial industry, since its primary impact would be to reduce trading volume. For the vast majority of investors, the savings from reduced trading would be equal or greater than the taxes paid on their trades.
The taxes proposed by Sanders and O’Malley would be a huge hit to Wall Street, bringing it back to the size, relative to the economy, that it was at two or three decades ago. Secretary Clinton has explicitly chosen not to go in this direction.
It is important for the public to recognize this difference. While the other two candidates are proposing measures that would be a major hit to the financial industry, Secretary Clinton is not. Voters should recognize this distinction in their positions; the reporting almost seems designed to hide it. [The Wall Street Journal committed a similar sin, although the error was not quite as egregious.]
I mention this because some of the reporting on this topic might have misled some people. For example, the NYT recently told readers:
“All three candidates [Clinton, O’Malley, and Sanders] support a financial transaction tax to limit high-frequency trading.” [emphasis in original]
While Clinton has proposed a tax on high frequency trading, which is almost certainly unworkable, the other two candidates have actually proposed financial transactions taxes. The taxes they have proposed would raise between $600 billion and $2 trillion over the next decade. Virtually all of this money would come out of the pockets of the financial industry, since its primary impact would be to reduce trading volume. For the vast majority of investors, the savings from reduced trading would be equal or greater than the taxes paid on their trades.
The taxes proposed by Sanders and O’Malley would be a huge hit to Wall Street, bringing it back to the size, relative to the economy, that it was at two or three decades ago. Secretary Clinton has explicitly chosen not to go in this direction.
It is important for the public to recognize this difference. While the other two candidates are proposing measures that would be a major hit to the financial industry, Secretary Clinton is not. Voters should recognize this distinction in their positions; the reporting almost seems designed to hide it. [The Wall Street Journal committed a similar sin, although the error was not quite as egregious.]
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News reports continue to obsess over the idea that China and other countries might run out of people if they don’t increase their birth rates. The implication is that countries won’t have enough people to do the necessary work to support a larger population of retirees. (It’s worth noting that many of these same people worry about robots taking all the jobs. If it’s not obvious that these concerns are 180 degrees opposite then think about it until it is.) Anyhow, the NYT had an article that referred to the expected population gains from China ending its one-child policy which gives an idea of the economic importance of this measure.
The piece told readers:
“Mr. Wang [a vice minister of the National Health and Planning Commission] said that the relaxation of rules governing family size would bring more than 30 million new entrants into the labor force by 2050, and that the proportion of older people in China’s total population would be reduced by about 2 percentage points.”
To get some rough idea of the impact of this increase in the size of the working age population, if the ratio of workers to retirees would have been 2.0 to 1 in the baseline, it would be roughly 2.2 to 1 as a result of the increased birthrate. If a retiree’s living standard is equal to 80 percent of a worker’s living standard, this would imply an increase in the living standard of workers just over 3 percent by 2050 as a result of higher ratio of workers to retirees. This is equivalent to less than six months of growth at China’s current pace.
Furthermore, the actual improvement in living standards as a result of the higher birth rate would be considerably less than 3.0 percent, since there will be more dependent children to support in the higher population growth scenario. In addition, the larger population will place greater demands on the infrastructure and the environment. On net, the more rapid population growth could certainly have a negative impact on living standards in 2050, especially if we consider distribution (a greater supply of labor could mean lower wages). However, even before factoring in the negatives, the potential benefits of a larger ratio of workers to retirees are swamped by the impact of economic growth.
News reports continue to obsess over the idea that China and other countries might run out of people if they don’t increase their birth rates. The implication is that countries won’t have enough people to do the necessary work to support a larger population of retirees. (It’s worth noting that many of these same people worry about robots taking all the jobs. If it’s not obvious that these concerns are 180 degrees opposite then think about it until it is.) Anyhow, the NYT had an article that referred to the expected population gains from China ending its one-child policy which gives an idea of the economic importance of this measure.
The piece told readers:
“Mr. Wang [a vice minister of the National Health and Planning Commission] said that the relaxation of rules governing family size would bring more than 30 million new entrants into the labor force by 2050, and that the proportion of older people in China’s total population would be reduced by about 2 percentage points.”
To get some rough idea of the impact of this increase in the size of the working age population, if the ratio of workers to retirees would have been 2.0 to 1 in the baseline, it would be roughly 2.2 to 1 as a result of the increased birthrate. If a retiree’s living standard is equal to 80 percent of a worker’s living standard, this would imply an increase in the living standard of workers just over 3 percent by 2050 as a result of higher ratio of workers to retirees. This is equivalent to less than six months of growth at China’s current pace.
Furthermore, the actual improvement in living standards as a result of the higher birth rate would be considerably less than 3.0 percent, since there will be more dependent children to support in the higher population growth scenario. In addition, the larger population will place greater demands on the infrastructure and the environment. On net, the more rapid population growth could certainly have a negative impact on living standards in 2050, especially if we consider distribution (a greater supply of labor could mean lower wages). However, even before factoring in the negatives, the potential benefits of a larger ratio of workers to retirees are swamped by the impact of economic growth.
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Eduardo Porter had a good piece in the NYT today about how India’s development needs are likely to lead to a massive increase in its greenhouse gas emissions over the next two decades. This is an interesting issue to think about in the context of secular stagnation.
The problem of secular stagnation is that the United States and other wealthy countries are not creating enough demand to fully employ their labor forces. A great way to increase demand in the U.S. economy would be to pay India to develop using clean energy instead of coal. In effect, the U.S. and other wealthy countries would be covering the difference between the cost of using wind and solar energy. This would both curb emissions and also address the problem of secular stagnation by creating more demand.
Yes folks, I know that India may not buy the wind turbines and solar panels from the United States. But, if we put more dollars out into the world economy, it should drive down the value of the dollar, which will make our goods and services more competitive internationally. This will improve our trade deficit. (Of course, that assumes that other countries’ central banks may choose to hold these dollars to prop up the dollar against their currency. If the United States were not such a weak country, we might be able to use our influence and power to deter this sort of currency management, but the artificially propping up of the dollar would be a real risk, which would limit the extent to which the U.S. would see additional demand.)
Eduardo Porter had a good piece in the NYT today about how India’s development needs are likely to lead to a massive increase in its greenhouse gas emissions over the next two decades. This is an interesting issue to think about in the context of secular stagnation.
The problem of secular stagnation is that the United States and other wealthy countries are not creating enough demand to fully employ their labor forces. A great way to increase demand in the U.S. economy would be to pay India to develop using clean energy instead of coal. In effect, the U.S. and other wealthy countries would be covering the difference between the cost of using wind and solar energy. This would both curb emissions and also address the problem of secular stagnation by creating more demand.
Yes folks, I know that India may not buy the wind turbines and solar panels from the United States. But, if we put more dollars out into the world economy, it should drive down the value of the dollar, which will make our goods and services more competitive internationally. This will improve our trade deficit. (Of course, that assumes that other countries’ central banks may choose to hold these dollars to prop up the dollar against their currency. If the United States were not such a weak country, we might be able to use our influence and power to deter this sort of currency management, but the artificially propping up of the dollar would be a real risk, which would limit the extent to which the U.S. would see additional demand.)
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The NYT decided to take on Donald Trump’s assertion that the Trans-Pacific Partnership (TPP) is a bad deal for the United States because it doesn’t have any provisions on currency manipulation, henceforth referred to as “management.” (“Manipulation” implies something that is hidden. Most of the countries who have been candidate “manipulators” have an explicit policy of targeting the exchange rate of their currency against the dollar and buy large amounts of U.S. government bonds to keep the value of their currency down. We don’t have to catch them in the middle of the night doing something inappropriate in currency markets. They do in broad daylight where everyone can see it.)
The fact check begins:
“While it is true that the trade deal includes no binding mechanism for dealing with countries that engage in currency manipulation — something that could precipitate sanctions, for example — it does include commitments by signatories to avoid aggressively weakening their currencies to gain market share for their exports.”
Actually, the TPP signatories already have similar commitments as members of the I.M.F. It is not clear how the new commitments are qualitatively different and with no enforcement mechanism, it is difficult to believe anyone will take them seriously. We have clear enforcement mechanisms for the rights of investors, obviously they did not feel that vague “commitments” were sufficient. Why should anyone who cares about the trade deficit caused by currency management be obligated to accept a much weaker and likely meaningless provision?
Next we get:
“While many economists agree with Mr. Trump that currency manipulation by our trading partners costs American jobs, they often frown upon the inclusion of strict anticurrency manipulation provisions in the text of trade agreements, arguing that it can be more fruitful to address the problem in bilateral negotiations with the offending country.”
Yes, we have been doing bilateral negotiations for decades. We still have a trade deficit of close to 3 percent of GDP (@$500 billion a year). If economists like Paul Krugman, Larry Summers, and Olivier Blanchard are correct, and we face an ongoing problem of secular stagnation, then the trade deficit is creating a major shortfall in demand that can not be easily filled by other components of GDP.
As far as the view of “many economists,” economists tend not to take seriously the unemployment and wage declines caused by large trade deficits. It is rarely their friends and families that are affected.
And for the concluding shot:
“Finally, as Senator Rand Paul pointed out, China is not a party to the Trans-Pacific Partnership agreement. In fact, one of the administration’s arguments for passing the agreement is that it would help check China’s influence in the region, and its ability to ‘write the rules of the global economy.'”
The NYT strikes out big time here. The plan is to expand the TPP to eventually include China. The idea is to have them play by our rules. If there are not rules on currency management at the time China enters the TPP it is very unlikely it will agree to have them added.
Note: link added, thanks Ltr.
The NYT decided to take on Donald Trump’s assertion that the Trans-Pacific Partnership (TPP) is a bad deal for the United States because it doesn’t have any provisions on currency manipulation, henceforth referred to as “management.” (“Manipulation” implies something that is hidden. Most of the countries who have been candidate “manipulators” have an explicit policy of targeting the exchange rate of their currency against the dollar and buy large amounts of U.S. government bonds to keep the value of their currency down. We don’t have to catch them in the middle of the night doing something inappropriate in currency markets. They do in broad daylight where everyone can see it.)
The fact check begins:
“While it is true that the trade deal includes no binding mechanism for dealing with countries that engage in currency manipulation — something that could precipitate sanctions, for example — it does include commitments by signatories to avoid aggressively weakening their currencies to gain market share for their exports.”
Actually, the TPP signatories already have similar commitments as members of the I.M.F. It is not clear how the new commitments are qualitatively different and with no enforcement mechanism, it is difficult to believe anyone will take them seriously. We have clear enforcement mechanisms for the rights of investors, obviously they did not feel that vague “commitments” were sufficient. Why should anyone who cares about the trade deficit caused by currency management be obligated to accept a much weaker and likely meaningless provision?
Next we get:
“While many economists agree with Mr. Trump that currency manipulation by our trading partners costs American jobs, they often frown upon the inclusion of strict anticurrency manipulation provisions in the text of trade agreements, arguing that it can be more fruitful to address the problem in bilateral negotiations with the offending country.”
Yes, we have been doing bilateral negotiations for decades. We still have a trade deficit of close to 3 percent of GDP (@$500 billion a year). If economists like Paul Krugman, Larry Summers, and Olivier Blanchard are correct, and we face an ongoing problem of secular stagnation, then the trade deficit is creating a major shortfall in demand that can not be easily filled by other components of GDP.
As far as the view of “many economists,” economists tend not to take seriously the unemployment and wage declines caused by large trade deficits. It is rarely their friends and families that are affected.
And for the concluding shot:
“Finally, as Senator Rand Paul pointed out, China is not a party to the Trans-Pacific Partnership agreement. In fact, one of the administration’s arguments for passing the agreement is that it would help check China’s influence in the region, and its ability to ‘write the rules of the global economy.'”
The NYT strikes out big time here. The plan is to expand the TPP to eventually include China. The idea is to have them play by our rules. If there are not rules on currency management at the time China enters the TPP it is very unlikely it will agree to have them added.
Note: link added, thanks Ltr.
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The NYT apparently thinks so, since it ran a front page piece on the difficulty of increasing birth rates in Europe, China, and elsewhere. Let’s see, if we have a declining population that means fewer traffic jams, less crowded parks and beaches, and less pollution. Sounds like a crisis to me.
I know the “hard to get good help” crowd is worried about who is going to work as their servants, but for the foreseeable future it looks like we are facing a situation of inadequate demand in the economy (a.k.a. secular stagnation). This means that we do not have enough demand to fully employ the available workforce. If we don’t have enough demand to employ the available workforce how is it a problem if the size of the available workforce shrinks?
People should feel confident enough in their economic situation and have sufficient social support in the form of affordable child care and paid leave from work that they can have children if they want. But if the population declines because people opt not to have children, it’s difficult to see what the problem is.
The NYT apparently thinks so, since it ran a front page piece on the difficulty of increasing birth rates in Europe, China, and elsewhere. Let’s see, if we have a declining population that means fewer traffic jams, less crowded parks and beaches, and less pollution. Sounds like a crisis to me.
I know the “hard to get good help” crowd is worried about who is going to work as their servants, but for the foreseeable future it looks like we are facing a situation of inadequate demand in the economy (a.k.a. secular stagnation). This means that we do not have enough demand to fully employ the available workforce. If we don’t have enough demand to employ the available workforce how is it a problem if the size of the available workforce shrinks?
People should feel confident enough in their economic situation and have sufficient social support in the form of affordable child care and paid leave from work that they can have children if they want. But if the population declines because people opt not to have children, it’s difficult to see what the problem is.
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In an editorial railing against the Republican Congress for reducing the Fed’s reserve fund (which is needed in case they forget how to print money), the Washington Post told readers:
“Central bank independence and fiscal transparency are attributes of a healthy democracy and have been throughout history. Many a banana republic, by contrast, has come to grief using its central bank to facilitate government deficit spending. Post-World War I Germany had a similar problem, if memory serves.”
Apparently memory isn’t serving the Post’s editorial writers very well. The Bank of England did not independently set its monetary policy until 1997. Nonetheless, it somehow it managed to avoid hyperinflation and most people probably would still describe the U.K. as a democracy. There are many other examples of central banks, including the Fed during World War II and for six years afterwards, which were not independent of the elected government. In almost none of these cases did countries suffer from hyperinflation.
On the other side, independent central banks in the United States and Europe somehow managed to overlook enormous housing bubbles, the collapse of which sank their economies. In Europe, the collapse has actually caused more economic damage than the Great Depression. Incredibly, none of the bank officials responsible lost their jobs for their extraordinary incompetence.
Unlike dishwashers, truck drivers, or school teachers, independent central bankers are not held responsible for the quality of their performance. In fact, virtually all of the bankers responsible for this disaster will retire with pensions that are an order of magnitude larger than the Social Security checks that so enrage the Post’s editorial writers.
In an editorial railing against the Republican Congress for reducing the Fed’s reserve fund (which is needed in case they forget how to print money), the Washington Post told readers:
“Central bank independence and fiscal transparency are attributes of a healthy democracy and have been throughout history. Many a banana republic, by contrast, has come to grief using its central bank to facilitate government deficit spending. Post-World War I Germany had a similar problem, if memory serves.”
Apparently memory isn’t serving the Post’s editorial writers very well. The Bank of England did not independently set its monetary policy until 1997. Nonetheless, it somehow it managed to avoid hyperinflation and most people probably would still describe the U.K. as a democracy. There are many other examples of central banks, including the Fed during World War II and for six years afterwards, which were not independent of the elected government. In almost none of these cases did countries suffer from hyperinflation.
On the other side, independent central banks in the United States and Europe somehow managed to overlook enormous housing bubbles, the collapse of which sank their economies. In Europe, the collapse has actually caused more economic damage than the Great Depression. Incredibly, none of the bank officials responsible lost their jobs for their extraordinary incompetence.
Unlike dishwashers, truck drivers, or school teachers, independent central bankers are not held responsible for the quality of their performance. In fact, virtually all of the bankers responsible for this disaster will retire with pensions that are an order of magnitude larger than the Social Security checks that so enrage the Post’s editorial writers.
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